BIR Ruling [DA-087-03]

March 20, 2003 BIR RULING [DA-087-03] 24 (B) (1) & 27 (D) (1); 204-90 & 4-90 PNB Foundation, Inc. 10/F, PNB Financial Center Roxas Blvd., Metro Manila Attention: Ms. Emerita S. Diaz Chairperson Scholarship Committee Gentlemen : The refers to your letter dated October 2, 2000 requesting for exemption from the payment of the 20% withholding tax on bank deposits and passive investments. It is represented that the PNB Foundation, Inc. is a non-stock, non-profit domestic corporation, organized and registered with the Securities and Exchange Commission under SEC Registration No. ANO91-196990 dated October 17, 1991; that the primary purpose for which it was organized is "to promote, carry on, conduct and encourage the advancement and development of education and training in the fields of industrial, technological and agricultural sciences and related activities designed to contribute to maximization of economic productivity, community development, wider distribution of social and economic values, with a view to directly assisting the beneficiaries in establishing and maintaining their own livelihood activities to achieve economic independence and improvement through financial aid and support, grants, scholarships, sponsorship, donations and other forms of assistance from the Foundation"; that it is governed by trustees who receive no compensation and no part of its funds and income inure to the benefit of any of its members; that to ensure its purposes are accomplished or attained, its assets are well-preserved or safeguarded so that they are always available when the need for them arises; and that these control measures demand that excess funds should be deposited in a bank and/or placed in short term investments which will yield interest income to the foundation. In reply, please be informed that pursuant to Sections 24(B)(1) and 27(D)(1) in relation to Section 57(A) of the Tax Code of 1997, interest income from currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements are subject to the 20% final withholding tax. EDISaA It has been the constant and uniform holding of this Office that exemption from taxation is not favored and is never presumed, so that if granted it must be strictly construed against the taxpayer. Affirmatively put, the law frowns on exemptions from taxation, hence, as exempting provision should be construed strictissimi juris . (Catholic Church vs. Hastings, 5 Phil 701; Esso Standard Eastern, Inc. vs. Acting Commissioner of Customs, 18 SCRA 488; Phil. Acetylene vs. CIR, 20 SCRA 1056; CIR vs. Guerrero, 21 SCRA 180; and Manila Electric Co. vs. Vera, 67 SCRA 351) Moreover, Executive Order No. 93 effective March 10, 1987 withdrew all tax and duty incentives granted to government and private entities subject to certain exceptions. Even corporations organized for charitable and social welfare purposes which are exempt from the payment of income tax on income received by it as such organization are subject to the corresponding internal revenue taxes imposed under the Tax Code of 1997 on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof, which income should be returned for taxation, hence, its interest income from Philippine currency bank deposits and yield or other monetary benefits from deposit substitute instruments are subject to the 20% final withholding tax pursuant to Section 27(D)(1), in relation to Section 57(A), both of the Tax Code of 1997. (BIR Ruling No. 204-90 dated October 23, 1990 and BIR Ruling No. 4-90 dated January 12, 1990) In view of the foregoing, your request for exemption from the payment of the 20% final withholding tax on bank deposits and yield or other monetary benefits from deposit substitute instruments is hereby denied for lack of legal basis. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group